Hello Mustachians!
Near the beginning of 2015, my family had a large (about $100,000) windfall. I wanted to make sure I did the best possible thing with this good luck so I started doing a lot of research on investment. In my research I discovered this site and was awakened to the possibilities of FI and early retirement.
My family has never been especially big spenders, and I would say that up until this point we had been moderately financially aware. We managed to avoid many of the worst pitfalls without really focusing on it: we’ve always had used cars, avoid debt, avoided blowing money on cable TV, took (partial) advantage of savings plans at work, etc. But just becoming aware that FIRE was a possibility suddenly made me extremely motivated to turn our good fortune into a jump start on early retirement, so 2015 and early 2016 was spent plucking the low-hanging fruit for reducing our expenses, reading tons of blog posts, and making over-complicated spreadsheets.
Part way through 2016, I’m taking a fresh look at our position and I’d like to ask the community to take a look at it too to help me determine where I should focus my efforts next to accelerate my retirement.
So here’s the summary of our situation:
We are a family of 5. My wife and I are both turning 40 this year; the 3 kids range from 2 to 8. I work, but my wife has been a stay-at-home mom since our first was born. She might go back to work at a low stress job in 4 years when our youngest enters kindergarten.
My home is roughly 15 miles from my workplace (facepunch!), but otherwise very conveniently located to all the schools the kids will attend, groceries, doctors, etc. This results in a daily round-trip commute time of 1 to 2 hours depending on traffic. My daily commute is something I’d of course like to reduce or eliminate, but prices nearer my workplace are significantly higher than where we are now and public schools are not as good.
MONTHLY INCOMEFor some entries below I’ve got two numbers divided by a slash. First number is base salary, second number includes my usual annual bonus (averaged over the year).
- Gross Salary: $9000 / $10,000
- Tax withholding: $1600 / $1960
- 401k withholding: $1500
- Other pre-tax withholding: $500 (this covers medical/dental/vision insurance, life insurance, and a $1000 FSA account for the year)
- So, total take-home is roughly $5400 / $6040
FINANCIAL ASSETS: $433,000 retirement assetsThe total listed above includes all retirement assets, but not the cash in the bank (some of which is allocated to yearly expenses like property tax) or the college savings plans.
- 401k: $260,000
- My Roth IRA: $16,000
- Wife’s Trad IRA: $11,000
- Taxable Investments: $115,000
- Whole Life Policy (if cashed out): $16,000
- Wife’s PERS Account: $15,000
- 526 College Savings Plans: $24,000
- Cash in the bank: $11,000
TANGIBLE ASSETS- Our house: Worth roughly $375,000; see remaining loan below
- 2012 Nissan Leaf (bought for cash). This is my daily commuter and gets the bulk of the miles. Around the time we bought the Leaf, we replaced our light bulbs with LEDs and also got rid of a hot tub that came with our house; these changes have more than covered the electricity costs of my commute. Awesome!
- 2007 Toyota Sienna (bought for cash). For transporting kids, the occasional Home Depot run, and taking trips outside the range of the Leaf.
DEBTS- Mortgage: $235,000. We recently refinanced to a 15-year fixed rate loan at 3.125%; it pays off in late 2029.
AVERAGE MONTHLY EXPENSES: $4400Home and Garden ($1690):- Mortgage interest: roughly $620 (P&I is $1800; I count principal as savings)
- Home Insurance: $75
- Property Tax: $380
- Yard Service: $195 (this is a splurge that I struggle with, but my wife and I hate yardwork and we would KILL the awesome yard that this house came with)
- Home Improvement + furnishings: $300 (this was MUCH higher last year since we had just moved into a new house. I hope to keep it at a controlled level from now on)
- Home Repair: $100 (likely to be higher on average over the long term, I know)
- Gardening and Other Landscaping: $20
Food ($1250, or about $8.25 per person per day):- Groceries: $950 (also includes household goods purchased at grocery stores; been thinking I might need to start itemizing to figure out where the money is going)
- Dining Out: $200 (this is significantly reduced from a former massive dining-out habit)
- School Lunches for 2 kids: $100
Utilities and Services ($440):- Misc Entertainment Services: $16 (Netflix + Amazon Prime)
- Electricity: $160 (varies a lot seasonally; home has an electric heat pump)
- Natural Gas: $34 (gas water heater + gas heat on coldest days)
- Water and Sewer: $85 (spikes in summer)
- Garbage Collection: $40
- Internet Service: $50
- Mobile phones (2 adults on Ting): $55
Transportation ($440):- Car insurance for 2 cars: $115
- Car registration for 2 cars: $20
- Gasoline: $60
- Car maintenance for 2 cars: $200
- Travel: $40 (I’ve started travel hacking to keep our costs for vacations down)
- Parking: $5
Everything Else ($580):- Misc Shopping, Gifts, Kids, Parties, Etc: $250 (this category is primarily my wife’s, and is not easy to break down, but I might start making an attempt)
- Clothes: $120 (some clothes expenses end up under misc shopping, too.)
- Personal Care (Haircuts, Nails, etc): $84
- Education Expenses: $24
- Charity: $50
- Medical: $40
- Whole Life Policy: $12
MONTHLY SAVING: $3534- I count my mortgage principal as saving; roughly $1180 a month this year.
- 401k contribution: $1500, maxed out
- 401k matching: $104 (this is capped at an anemic $1250 yearly, but policy changed and this will be about 3x higher next year)
- 526 College Savings contributions: $300
- I also fully funded my wife’s Traditional IRA this year to the tune of roughly $450 a month.
- Note that this amount of saving appears to take us over our available funds by about $290 a month. This is because we received a large tax refund this year (related to the windfall received last year) and invested it. Not sure what our refund situation will be next year, but I hope to maintain the same or higher savings level (reducing spending if we can to make it up).
So, this year it looks like our savings rate is:
- 40% if you do (pay - taxes - mortgage interest - other expenses) / (pay - taxes)
- 43% if you do the same but include my extra $290 a month from my tax refund this year
That’s the scenario. Our goals are pretty simple:
- We’d love for me to be able to retire or partially retire. I’d do it today if I could, but we obviously have a way to go yet. :-)
- I want to be able to spend more time with the kids at this important time of their lives (while they still WANT to spend time with us)
- I have hobbies which I love but don’t spend enough time on to satisfy me. And, being retired would enable me to support my wife in raising the kids, to also give her more time to spend on her hobbies.
- Longer term, we want to help the kids go to college if they want to -- but not pay their way entirely at the expense of our own retirement. We might do something creative to help, like try for low-stress jobs at colleges where employees get a discount for their kids when the time comes.
- Ideally we’d like to make this work in our current house for now. It’s perhaps a bit large (5 bedroom), but with 3 kids we’re thinking it’s not going to seem so large when they are in high school. And, my wife’s hobby in particular is one which benefits from a dedicated room to spread out in.
Some ideas around this that I’m kicking around:
- From a purely logistical standpoint, my plan is to save up 5 years of expenses in our taxable account, then when we pull the trigger I’ll establish a Roth conversion pipeline to access assets from the 401k/IRA.
- There’s a good chance that as we get close, I could wind down slowly at work rather than stop abruptly. Work from home more often, maybe do 3 days a week, etc.
- In a few years my wife may start working again on a part-time, low stress basis. She may even want to after 12 years of stay-at-home-momming. We might be able to use this extra income to pay down the house quickly
I’m ready to accept any facepunches! Where should I optimize next? How far away from making this work am I, really? And, thanks in advance for your time!